China buys into giant oilfield in Kazakhstan for $6.4 billion

An aerial view shows artificial islands on Kashagan offshore oil field in the Caspian sea, western Kazakhstan on April 7, 2013. Chinese President Xi Jinping on Saturday will oversee China's entry into Kashagan as he tours post-Soviet Central Asia to secure hydrocarbons for the world's largest energy consumer. -- FILE PHOTO: REUTERS

ASTANA (Reuters) - Chinese President Xi Jinping on Saturday will oversee China's entry into Kashagan, a vast oilfield in Kazakhstan, as he tours post-Soviet Central Asia to secure hydrocarbons for the world's largest energy consumer.

The US$5 billion (S$6.4 billion) deal futher increases China's rising clout in Central Asia, once Russia's imperial backyard, and blocks an attempt by global rival India to get a stake in the oilfield, the world's largest oil discovery in five decades.

Kazakhstan will sell 8.33 per cent of the offshore oilfield to China for about US$5 billion in a deal to be signed during Mr Xi's visit to Kazakh capital Astana later on Saturday, Kazakh government sources told Reuters.

The sale and purchase agreement will be signed by the heads of Kazakh national oil and gas company KazMunaiGas and China National Petroleum Corp (CNPC), said the officials, who requested anonymity.

"We suppose that the transaction will be closed by late September or late October," one of the officials said.

One of the clauses of the agreement stipulates that China will help arrange a loan of up to US$3 billion for KazMunaiGas to help it finance the second stage of Kashagan's development, due to begin after 2020, he said.

China is already involved in a number of oil projects in the vast resource-rich neighbour, which is five times the size of France but has a population of just 17 million.

The Kazakh deal comes after Astana decided in July to use its pre-emptive right to buy an 8.4 per cent stake in Kashagan that US oil major ConocoPhillips was selling for US$5 billion.

Houston-based ConocoPhillips, whittling down its worldwide portfolio of assets, announced last year it had agreed to sell the stake to ONGC, the overseas arms of the Indian state-run company.

The sale to CNPC blocks India's plan to enter the Kashagan project.

Kazakhstan, home to 3 per cent of the world's recoverable oil reserves, has moved in recent years to exert greater management control and secure bigger revenues from foreign-owned oil and gas projects.

KazMunaiGas entered the Kashagan consortium as a shareholder in 2005 and has since then doubled its stake to 16.81 per cent.

Kashagan and the neighbouring fields in the North Caspian Sea hold estimated reserves of 35 billion barrels of oil in place, with from nine billion to 13 billion barrels being recoverable.

Kazakh officials have said they expect the giant reservoir off western Kazakhstan to produce first oil later this month.

A multinational consortium developing the field has invested some US$50 billion in about 13 years, making it the costliest oil project in the world.

During Kashagan's development, production will be gradually increased to 370,000 barrels per day in the second stage from 180,000 bpd in the first stage in 2013-2014, according to North Caspian Operating Company (NCOC), which is developing the field.

Italy's ENI, US major ExxonMobil, Royal Dutch Shell and France's Total currently all hold 16.81 per cent stakes in Kashagan. Japan's Inpex owns 7.56 per cent.

The Straits Times

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